/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN
THE U.S./
TORONTO, July 30, 2013 /CNW/ - First National Financial Corporation
(TSX: FN) (the "Company" or "FNFC") today announced its financial
results for the second quarter ended June 30, 2013. The Company derived
virtually all of its earnings from its wholly-owned subsidiary, First
National Financial LP ("FNFLP" or "First National").
Second Quarter Summary
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Mortgages under administration ("MUA") up 12% year over year to $71.2
billion
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Mortgage originations lower by 6% to $4.2 billion from $4.4 billion
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Revenue up 46% to $229.8 million from $157.0 million
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Net income up 275% to $67.8 million ($1.10 per common share) from $18.1
million ($0.28 per common share)
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Income before income taxes up 265% to $91.9 million from $25.5 million
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Pre-FMV EBITDA* up 29% to $51.2 million from $39.6 million
"First National continued to profitably build both its mortgages under
administration and mortgages pledged under securitization during the
first half of 2013," said Stephen Smith, Chairman and President. "In
fact, MUA set new records in each of the first two quarters of 2013 and
was up a healthy 4% or 16% annualized since March 31st. We take this as a positive sign of our strength in the Canadian
housing market."
"On the basis of originations, First National continued to enjoy the
benefits of our broad Canadian market presence and standing with
mortgage brokers," said Moray Tawse, Vice President, Mortgage
Investments. "This allowed us to keep single family originations at a
healthy $3.5 billion level in the quarter despite government measures
that have moderated housing activity. While single family originations
were lower than a year ago by 9%, we noted a marked improvement over
the start of the year which reflects signs of growing consumer
confidence and a soft-landing scenario for real estate. We're also
pleased to note our commercial segment's steady results with
originations up 7% year over year to $677 million."
First National marked its seventh anniversary as a public company in
June 2013. During this seven-year period, the Company has paid $577
million in distributions/dividends to shareholders, representing a
pre-tax return of 96% on the IPO price of $10. Including capital
appreciation, the total return to an original shareholder has been over
150%.
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Quarter ended
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Six months ended
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June 30,
2013
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June 30,
2012
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June 30,
2013
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June 30,
2012
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For the Period
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($ 000's)
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Revenue
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229,830
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156,983
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375,058
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290,948
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Income before income taxes
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91,945
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25,499
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123,181
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61,687
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Pre-FMV EBITDA (1)
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51,193
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39,610
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88,057
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70,837
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At Period end
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Total assets
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18,793,683
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13,682,980
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18,793,683
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13,682,980
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Mortgages under administration
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71,228,677
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63,676,028
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71,228,677
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63,676,028
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(1)
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This non-IFRS measure adjusts income before income taxes by adding back
expenses for amortization of
intangible and capital assets (generally described as EBITDA) but it
also eliminates the impact of changes
in fair value by adding back losses on the valuation of financial
instruments and deducting gains on the
valuation of financial instruments.
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Q2 2013 Results
First National's MUA grew to $71.2 billion at June 30, 2013 from $63.7
billion at June 30, 2012, an increase of 12%. Between March 31, 2013
and June 30, 2013, MUA grew approximately 4% from $68.5 billion, for an
annualized increase of 16%.
Total single-family mortgage originations of $3.5 billion were 9% lower
than the $3.8 billion originated in the second 2012 quarter. Commercial
segment originations increased 7% to $677 million from $631 million in
the same period of 2012. Overall origination was down 6% year over
year. Of the $4.2 billion of originations in the quarter, $1.3 billion
was originated for securitization purposes.
Second quarter revenue increased 46% to $229.8 million from $157.0
million in 2012 as a result of growth in the business, a large gain on
financial instruments (representing 35% of the year over year increase)
and an $18 million or 11% increase in interest revenue from securitized
mortgages.
Income before income taxes in the quarter increased 260% to $91.9
million from $25.5 million in the second quarter of 2012. Of this $66.7
million improvement, $54.8 million was due to positive changes in gains
and losses on financial instruments. Rising interest rate yields in the
bond market positively affected the fair value of the Company's
interest rate hedges.
Without the impact of gains and losses on financial instruments, which
have been volatile, the Company's Pre-FMV EBITDA increased by 29% to
$51.2 million from $39.6 million a year ago. This increase is due to
the steady growth of the Company's core business, including increased
net margin on securitized mortgages and higher mortgage investment
income.
Determination of Adjusted Cash Flow and Payout Ratio
The Board declared dividends in the second quarter of 2013 based on an
average annual rate of $1.40 per share. For the quarter ended June 30,
2013, the payout ratio was 50% the same as in the second quarter of
2012 despite a 12% year-over-year increase in dividends paid.
Determination of Adjusted Cash Flow and Payout Ratio
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Quarter ended
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Six months ended
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June 30,
2013
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June 30,
2012
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June 30,
2013
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June 30,
2012
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For the Period
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($ 000's)
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Cash provided by (used in) operating
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activities
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(353,329)
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101,965
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(544,832)
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229,593
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Add (deduct):
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Change in mortgages accumulated for
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sale or securitization between periods
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396,905
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(63,692)
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604,307
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(172,153)
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Adjusted Cash Flow (1)
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43,576
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38,273
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59,475
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57,440
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Less: cash dividends on preference shares
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(1,162)
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(1,162)
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(2,325)
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(2,325)
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Adjusted Cash Flow available for common
shareholders
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42,414
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37,111
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57,150
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55,115
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Adjusted Cash Flow per Common Share ($/share) (1)
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0.70
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0.62
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0.95
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0.92
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Dividends declared on Common Shares
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20,989
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18,740
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40,978
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37,480
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Dividends declared per Common Share ($/share)
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0.35
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0.31
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0.68
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0.62
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Payout Ratio
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50%
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50%
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72%
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67%
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Note:
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(1)
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These non-IFRS measures adjust cash provided by (used in) operating
activities by accounting for changes
between periods in mortgages accumulated for sale or securitization and
mortgage securitization activity.
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The 2013 second quarter payout ratio was indicative of strong business
performance as the increased pre-FMV EBITDA was also reflected in cash
flow. Although the Company recorded large gains on account of financial
instruments in the quarter, virtually all of these gains were
unrealized and had no impact on cash generated by the Company. First
National also continued to increase its securitization activities,
primarily through the funding of $1.7 billion of mortgages through
National Housing Act-Mortgage Backed Securities ("NHA-MBS") programs.
For such transactions, the Company paid various costs upfront for the
mortgages which it securitized, including brokerage, CMHC, CMB, swap
counterparty and syndication fees. These costs decreased operating cash
flow by approximately $7.4 million in the quarter. Given the degree of
this investment, the Company is pleased with the six months to date
payout ratio of 72%.
Outlook
Management considers the second quarter of 2013 to have been very
successful. Despite marginally lower origination volumes in the
residential segment, the Company was able to maintain its level of
securitization activity by taking advantage of its renewal
opportunities and demand from the capital markets. For the remainder of
2013, the Company anticipates the low interest rate environment to
continue with moderated, but still healthy, mortgage spreads. Despite
lower origination targets, management expects to continue to capitalize
on higher volumes of mortgage renewals and to generate cash flow from
its $15 billion portfolio of mortgages pledged under securitization in
order to maximize the Company's financial performance.
Conference Call and Webcast
July 31, 2013 10 a.m. ET
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Participant Numbers
416-644-3417
877-974-0446
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The audio of the conference call will be webcast live and archived on
First National's website at www.firstnational.ca. A question and answer session for analysts and institutional investors
will be held following management's presentation.
A taped rebroadcast will be available to listeners until 12 a.m. on
August 7, 2013. To access the rebroadcast, please dial 416-640-1917 or
877-289-8525 and enter passcode 4628905 followed by the number sign.
Complete consolidated financial statements for the Company as well as
management's discussion and analysis are available at www.sedar.com and at www.firstnational.ca.
About First National Financial Corporation
First National Financial Corporation (TSX: FN) is the parent company of
First National Financial LP, a Canadian-based originator, underwriter
and servicer of predominantly prime residential (single-family and
multi-unit) and commercial mortgages. With more than $71 billion in
mortgages under administration, First National is Canada's largest
non-bank originator and underwriter of mortgages and is among the top
three in market share in the mortgage broker distribution channel. For
more information, please visit www.firstnational.ca.
*Non-GAAP Measures
The Company uses IFRS as its accounting framework. IFRS are generally
accepted accounting principles (GAAP) for Canadian publically
accountable enterprises for years beginning on or after January 1,
2011. The Company also refers to certain measures to assist in
assessing financial performance. These "non-GAAP measures" such as
"Pre-FMV EBITDA", "Adjusted Cash Flow," and "Adjusted Cash Flow per
Share" should not be construed as alternatives to net income or loss or
other comparable measures determined in accordance with GAAP as an
indicator of performance or as a measure of liquidity and cash flow.
Non-GAAP measures do not have standard meanings prescribed by GAAP and
therefore may not be comparable to similar measures presented by other
issuers.
Forward-Looking Information
Certain information included in this news release may constitute
forward-looking information within the meaning of securities laws. In
some cases, forward-looking information can be identified by the use of
terms such as "may", "will, "should", "expect", "plan", "anticipate",
"believe", "intend", "estimate", "predict", "potential", "continue" or
other similar expressions concerning matters that are not historical
facts. Forward-looking information may relate to management's future
outlook and anticipated events or results, and may include statements
or information regarding the future financial position, business
strategy and strategic goals, product development activities, projected
costs and capital expenditures, financial results, risk management
strategies, hedging activities, geographic expansion, licensing plans,
taxes and other plans and objectives of or involving the Company.
Particularly, information regarding growth objectives, any future
increase in mortgages under administration, future use of
securitization vehicles, industry trends and future revenues is
forward-looking information. Forward-looking information is based on
certain factors and assumptions regarding, among other things, interest
rate changes and responses to such changes, the demand for
institutionally placed and securitized mortgages, the status of the
applicable regulatory regime and the use of mortgage brokers for single
family residential mortgages. This forward-looking information should
not be read as providing guarantees of future performance or results,
and will not necessarily be an accurate indication of whether or not,
or the times by which, those results will be achieved. While management
considers these assumptions to be reasonable based on information
currently available, they may prove to be incorrect. Forward
looking-information is subject to certain factors, including risks and
uncertainties listed under ''Risk and Uncertainties Affecting the
Business'' in the MD&A, that could cause actual results to differ
materially from what management currently expects. These factors
include reliance on sources of funding, concentration of institutional
investors, reliance on relationships with independent mortgage brokers
and changes in the interest rate environment. This forward-looking
information is as of the date of this release, and is subject to change
after such date. However, management and First National disclaim any
intention or obligation to update or revise any forward-looking
information, whether as a result of new information, future events or
otherwise, except as required under applicable securities regulations.
SOURCE: First National Financial Corporation